Puzzles: The global secular savings stagnation glut

Posted: April 3, 2015 in economy
Tags: , ,

BEN BERNANKE, until last year the chairman of America's Federal Reserve, has started blogging. Not just a little bit, either. Mr Bernanke has in the space of a few posts embroiled himself in a weighty online debate with some of the titans of economics, and blogging. Both Paul Krugman and Larry Summers are scrapping with the former chairman on the live and important subject of secular stagnation.Secular stagnation is an old idea which received an intellectual revival in 2013, when Mr Summers, who not long before was one of Barack Obama's chief economic advisors, began to deliver speeches on the topic. It describes a world in which there are lots of savings and comparatively few attractive places to invest them. The excess of saving over investment represents a shortfall in demand, and weak demand shows up in anaemic growth figures and low inflation.Normally a central bank would try to fix the imbalance between saving and investment by reducing interest rates (which should discourage saving and encourage borrowing). But in a weak enough economy with low enough inflation the interest rate needed to balance saving and investment might become negative—maybe even&nbsp;really negative. Given the difficulty of achieving a negative nominal interest rate, the central bank might find it hard to push an economy out of that sort of trap once it fell in.Indeed, Mr Summers reckons …<div class="og_rss_groups"></div>

via Economic Crisis http://ift.tt/1NGQxUb


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